THETRADETECH DA I LY
3%
No significant changes
40%-50%
62%
32%
3%
How much of the dark market will be
done in blocks 12 months from now?
36%
Small changes to certain
aspects of legislation
45%
19%
MiFID 2.5
MiFID 3
30% or less
More than 50%
delayed the implementation of its dark trad-
ing rules, which will introduce double volume
caps (DVCs), triggering bans on certain types
of dark trading when a transaction accounts
for 4% of the total activity on a single dark
venue, or 8% of total trading market-wide.
A statement from the European watchdog
on 9 January detailed that the data it had
received from trading venues in the six days
since the new regulations came into force was
insufficient for a “meaningful and compre-
hensive calculation” of the caps. That data
was finally published in early March and
showed a total of 744 instruments in January
and 643 in February this year hit either the
4% or 8% dark trading threshold.
Within the first week of the DVCs, which
eventually came into force on 12 March, trad-
ing in dark pools halved and large-in-scale
(LIS) activity dropped slightly across Europe
according to data from Thomson Reuters.
The Thomson Reuters March Share Re-
porter analysed activity between 12-16 March
displayed a clear indication that volumes
in dark pools are declining: Trading in dark
pools halved to 3.06% market share of on-
book trading from 6.15%, while LIS trading
fell slightly to 1.25% market share of on-book
trading from 1.43%.
The delayed implementation of the DVCs
did not come as a shock to the buy-side, who
understood that the sheer scale of the legis-
lation and volumes of new data would likely
cause problems.
“There were always going to be issues with
the initial implementation of MiFID II,”
Liontrust’s McLoughlin added. “That was
always going to happen because there is so
much involved and so much data needed to
be compliant. It was never going to be easy;
it’s an immediate change across the industry.
There are always glitches with something like
this before everything is ironed out.”
Looking forward
Just how long it takes for all the nuances
and glitches of MiFID II to be ironed out is
a matter of conjecture depending on where
people sit in the market. While much of the
discussion leading up to the introduction of
the new rules was focused solely on the 3
January implementation date, there is still
much more work to be done going into the
rest of the year and beyond.
Quantitative data won’t become available
on how the trading landscape has changed
for some time to come – with some estimat-
ing that it could take as long as 18 months to
filter through – but some market changes are
clearly being felt already.
Just one week into the new regime, the Eu-
ropean research market saw a decline of $300
million in the wake of MiFID II’s new rules on
unbundling payments for investment research
and execution fees. A study by Greenwich As-
sociates found research and advisory budgets
were reduced on average by 20% year-on-year,
causing nearly $300 million to be wiped off
its estimated $1.35 billion value, while firms
in Continental Europe made more severe
cuts, slashing equity research budgets by 32%,
although firms in the UK were more restrained
and reduced budgets by 17%.
What is evident is that MiFID II has placed
more responsibility on the buy-side to ensure
systems are working on a day-to-day basis as
they should be, and to stay on top of trades
that leave reporting obligations with the
buy-side.
Nevertheless, Hock at Union Investment
concluded: “We will continue implementing
new technology, improving our processes and
continually training our traders to be more
proactive with venues and organisations.”
“There were not any major disruptions or a drop in facilitation of liquidity across all asset classes in the
first two weeks of MiFID II”
CHRISTOPH HOCK, HEAD OF MULTI-ASSET TRADING, UNION INVESTMENT
18
THETRADETECH DAILY
How significant will amendments to
MiFID II be?
THE OFFICIAL NEWSPAPER OF TRADETECH 2018